Gap sales figures rise 13% in March / But most consumers, spooked by war, cut back spending

George Raine, Chronicle Staff Writer

Published 4:00 am, Friday, April 11, 2003

Many consumers kept their hands firmly in their pockets during March, some transfixed by the terror of war, others fearing job loss and still others not interested in braving blizzards. A good number, however, found their way to Gap Inc.

Making a case that its turnaround is for real, Gap on Thursday reported net sales of $1.4 billion for the five weeks ended April 5, a 13 percent increase over the $1.2 billion in sales in the year-ago period.

Comparable-store sales -- a key measure of stores open for more than a year -- increased 9 percent, compared with a 12 percent decrease in March 2002. It marked the sixth consecutive month of comparable sales gains the retailer has enjoyed.

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"There has been a restoration of the company's merchandising heritage," Lauren Cooks Levitan, a retail analyst with SG Cowen Securities Corp. in San Francisco, said of Gap, the nation's largest clothing store chain. "They've gotten back to an orientation that is more approachable to a wider market." Levitan owns no retail industry stock.

Others should be so lucky. All segments of the retail industry were affected by "weather, war, a weak economy and tough comparisons with March 2002," said Michael Niemira, an economist with the Bank of Tokyo-Mitsubishi Ltd., in New York, who publishes Retail Trends, a closely watched tally of 79 chain stores.

Niemira reported sales declines by 0.2 percent in March compared with the same month of 2002.

A number of analysts listed the fact Easter falls late this year -- on April 20, as compared with March 31 last year -- as contributing to the March decline.

However, Kurt Barnard, president and chief economist of Barnard's Retail Consulting Group in Upper Montclair, N.J., played down the impact of Easter on retail sales. "Years ago, a lady would parade in a new bonnet, and you would buy a new tie for Easter. Today, you put on a pair of khakis, and you're OK. Even jeans with holes. It's a different world."

Bernard said of the March retail results: "Retailing and consumer spending are functions of a four-letter word, and that word is jobs. When jobs are plentiful, consumers spend, and when they are scarce, people keep their hands in their pockets."

Wal-Mart same-store sales were listless, up 0.3 percent, the smallest gain since December 2000. But it faced a difficult comparison, given the 9.5 percent sales gain in March 2002.

Same-store sales were off 2.3 percent at Target Corp. and 3.1 percent at Sears. Federated Department Stores, which includes Macy's and Bloomingdale's, said same-store sales were down 6.5 percent.

"Spending is being driven by the fundamentals," Niemira said. "And there are more negatives than positives."

Indeed, said Barnard, "Strip the war away, and what are you left with? A population that is terribly jittery about the possibility of a pink slip headed in their direction. They're deeply concerned about the fact new jobs are not available. It's a population whose confidence level is low and plummeting."

There are exceptions to the downward spiral, however, and San Francisco's Gap is one. "In tough economic times, the consumer goes back to basics, and in uncertain times, people want more for their money and something that lasts," said Jennifer Black, retail analyst with Wells Fargo Securities in Portland, Ore. Neither she nor her firm owns Gap stock.

"Gap is at the very beginning of a turnaround, and (president and chief executive) Paul Pressler is building a very solid foundation to take the company to a new level," said Black, who has a buy rating on the stock.

Gap said it had a 6 percent increase in comparable sales at its Gap U.S. division in the period ended April 5, compared with a 12 percent drop last year. Banana Republic had a 5 percent decline, compared with a 4 percent drop last year. And Old Navy had a 17 percent gain compared with a 12 percent decline last year.

"We saw year-over-year improvement in overall merchandise margins in March, due to more regular price selling and higher markdown margins," said Sabrina Simmons, senior vice president for treasury and investor relations.

Also Thursday, San Francisco's Sharper Image reported a 37 percent increase in March when it posted $41.1 million in sales compared with $30 million a year ago. Its comparable store sales jumped 20 percent.

Ross Stores, based in Newark, reported sales of $347 million for the five weeks ended April 5, a 5 percent increase over the $329 million in sales in the year-ago period. Comparable store sales fells 5 percent.